When U.S. Senior District Judge Jed Rakoff rejected a $285 million settlement between Citigroup and the Securities and Exchange Commission last fall, he offered a stern rebuke to SEC lawyers who’d suggested his role was not to protect the public interest. “A court, while giving substantial deference to the views of an administrative body vested with authority over a particular area, must still exercise a modicum of independent judgment in determining whether the requested deployment of its injunctive powers will serve, or disserve, the public interest,” Rakoff wrote in his oft-quoted ruling. “Anything less would not only violate the constitutional doctrine of separation of powers but would undermine the independence that is the indispensible attribute of the federal judiciary.”
In the months since, at least three other federal judges have cited Rakoff in questioning whether settlements proposed by federal agencies serve the public interest, two in SEC cases and one in a Federal Trade Commission case. The SEC adopted a minor, mostly cosmetic revision in the policy that so provoked Rakoff — in which defendants are permitted to settle without admitting liability — but otherwise insisted that such compromises are the very foundation of federal enforcement efforts.
On Thursday, the agency’s position received a very powerful endorsement from the 2nd Circuit Court of Appeals. A three-judge panel ruled that the SEC’s case should be stayed pending a joint appeal of Rakoff’s ruling by the agency and Citigroup, overturning a Rakoff order that the case proceed. The extraordinary 17-page appellate ruling concludes that Citi and the SEC are likely to succeed in their argument that Rakoff was wrong to reject the settlement.
“The S.E.C. asserts that its settlement is in the public interest and that its access to a stay so as to protect the settlement is also in the public interest,” said the per curiam ruling by Judges John Walker, Pierre Leval, and Rosemary Pooler. “We are bound in such matters to give deference to an executive agency’s assessment of the public interest …. We have no reason to doubt the SEC’s representation that the settlement it reached is in the public interest. We see no bases for any contention that the SEC’s decision to enter into the settlement was ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.’”
Rakoff “misinterpreted” precedent on his discretion to evaluate the public interest, the appellate judges found, and exceeded his judicial authority: “The responsibilities for assessing the wisdom of such policy choices and resolving the struggle between competing views of the public interest are not judicial ones,” the opinion said.